Manner, Inc. has 10,000 shares of 5%, ₤100 par value, noncumulative preference shares and 20,000 ordinary shares with a ₤1 par value outstanding at December 31, 2017. There were no dividends declared in 2016. The board of directors declares and pays a ₤90,000 dividend in 2017. What is the amount of dividends received by the ordinary shareholders in 2017?

Question

Quizplus · Accepted Answer

Since the preference shares are noncumulative, they do not have any unpaid dividends from 2016. Therefore, all ₤90,000 of the dividend declared in 2017 goes to both the preference and ordinary shareholders. 
The preference shareholders are entitled to receive ₤5 per share (5% of ₤100 par value) which equals to a total of ₤50,000 (₤5 x 10,000 shares). 
The remaining ₤40,000 (₤90,000 - ₤50,000) goes to the ordinary shareholders. 
Thus, the amount of dividends received by the ordinary shareholders in 2017 is ₤40,000.